Andy and others on “free” business models

[it] pretty much sums up what I’ve been saying for years on Ken Radio..about the “If It’s Free It’s Me, If I Gotta Pay It’s No Way” crowd.

While on the one hand I agree, I don’t think investors are there yet. If we look where they make their bets (where they distribute their money) we see jaxtr, Rebtel, Jajah, and the latest, MSFT $240 million investment in Facebook just last week.

These companies are clearly not valued based on revenue (to say nothing of profit). They are valued on potential. Andy rightly says “what media planner in their right mind wants a 4-6 percent conversion user base after years of free use?” I’d argue that many of these companies will be lucky to get 4-6 percent conversion. Jaxtr’s CEO has been quoted as saying they hope to get just 1% of users to pay.

Elliott says:

You have to have a plan for monetizing the eyeballs. Google did a great job of this, which is why they are over $700 a share.

Someone needs a history reminder. Google DID NOT have a “plan” for doing so. They eventually stumbled upon adwords and they have been riding that one trick pony ever since. These investors invest in My Space, LinkedIn, Facebook, et al because they hope those companies will be so lucky too. Obviously, these companies probably do have some kind of “plan” for revenue on paper. Just as obviously, Andy isn’t buying it.

The really funny part is this is nothing new. Yahoo! was perhaps the first example of a colossal failure in this area when they tried to offer a paid version of their service and found no takers among their millions of “eyeballs”. But for the moment at least, despite these historical data points and despite what Dean and Andy say, investors are still ga ga for the “freemium” model.